Central Banks that make the same mistake are ‘rewarded’ with similar outcomes

While the Riksbank can focus exclusively on Sweden, the ECB has a more complicated task, having to ‘oversee’ a bunch of countries.

Both central banks have an exclusive mandate: “Price stability”. While in Sweden that is understood as 2% inflation, in the EZ it is something slightly lower.

Nevertheless, the two ‘countries’ central banks acted in tandem, tightening as a reaction to higher than target inflation due to oil price shocks. Not surprisingly, they ended up in the same “alley”, but the EZ side of the “alley” is a bit “darker” because of its more diffuse clientele.

Common Mistake_1

Common Mistake_2

Common Mistake_3

This is certainly more evidence against inflation targeting. It´s a “guide dog” that can easily lead you astray!

PS The US turned out different because, although it fell into the “first trap”, it didn´t repeat the mistake. Instead it did QE. Australia did even better because it didn´t fall even into the first trap, keeping NGDP evolving close to trend!

6 thoughts on “Central Banks that make the same mistake are ‘rewarded’ with similar outcomes

  1. Pingback: Central Banks that make the same mistake are ‘rewarded’ with similar outcomes | The Corner

  2. Swedes trying harder now to get back behind the curve. Repo rate cut to zero, and future guidance saying no rate rises until 2016, vs prior guidance of sometime in 2015. Still playing God when they should be targeting the forecast, but at least some humility creeping in.

  3. Ambrose Evans-Pritchard today:

    ” The Riksbank – arguably the world’s oldest central bank, with a tradition of bold monetary experiments – carried out a dramatic volte-face in July when it slashed rates and gave up trying to restrain asset prices. Governor Ingves was outvoted in what amounted to a policy mutiny.

    The shift over recent months is a triumph for Mr Svensson………”

    http://www.telegraph.co.uk/finance/economics/11193663/Riksbank-cuts-rates-to-zero-and-mulls-currency-war-to-fight-deflation.html

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